To raise funds, Fire Department proposes new service: Ambulance insurance

Palo Alto residents and businesses may soon have the option of subscribing to a new service that most will hope they’ll never have to use: unlimited rides in Fire Department ambulances.

The Palo Alto Fire Department is preparing to get into the insurance business by offering all households and businesses the option of paying a flat monthly fee. Those who participate would not have to pay any out-of-pocket costs if they require an ambulance transport — a service that can cost some residents as much $2,460 per trip.

The program would have two main goals: giving local residents and employees one less worry when they’re facing a medical emergency, and giving the Fire Department an important new revenue source at a time of budget shortfalls. The City Council’s Finance Committee received its first look at the proposed program last week and the full council is expected to take it up in early 2021.

“The biggest compliment we get as an emergency medical provider is our service,” Fire Chief Geo Blackshire told the committee at the Dec. 15 meeting. “The most regular complaint we get is billing. What we feel is that we’re providing some cushion to one of our biggest complaints that we get, and that’s our billing. We can provide that to the customer and give them a means of saving money, even if it’s over a long time.”

Fire Department leaders acknowledged that many people will choose not to opt into the program because their ambulance costs are already largely covered by their existing insurance policies. Individuals who are covered by Medi-Cal or Medicaid have no co-pay at all, while those on Medicare face a co-pay of between 10% and 20%, according to Amber Cameron, a business management analyst for the city. The cost is higher for those with commercial insurance, for whom the co-pay is about 27%, which typically amounts to between $385 and $650 per trip.

The full $2,460 fee typically only applies to people with no insurance, who make up about 11% of the department’s ambulance transports. In many cases, the department does not recover the cost of the ambulance transfer. The Fire Department collects about 41% of the fees, Cameron said, and the ambulance service operates at a loss.

The idea of ambulance insurance is far from new, according to city officials. Other California cities that run their own ambulance services, including Huntington Beach, Orange and Corona, have had similar programs since the 1990s. Most charge an annual fee between $43 (as in Anaheim) and $60 (as in Newport Beach and Huntington Beach) for the ambulance insurance.

Palo Alto’s fees are likely to be higher. The Finance Committee saw three options for residential customers, ranging from $80 to $120 per household per year. Participants would be able to opt-in or opt-out at any time.

For residents, the program would cover not only the entire household but also any guest who may be staying at the household. For participating businesses, the insurance program would cover all employees both when they are at the business address and when they are moving around the city in the course of coming to work.

Rates for businesses would range by employee count. Small businesses with up to 10 employees would likely see a rate of between $200 and $300 annually, while for large businesses (those with up to 1,000 employees) the rate would range from $10,000 to $15,000.

If plans move forward, the program would net the Fire Department between $1.1 million and $1.65 million in new revenues annually, depending on the rates. This presumes that about 27.5% of the city’s households and businesses participate, a similar proportion to other communities that currently have such programs in place.

Blackshire said the department was motivated to start this program by the success they’ve seen elsewhere with ambulance insurance. The Fire Department hopes to mimic that success and, in the process, create a new revenue source at a time when revenues from sales and hotel taxes are plummeting.

The city is banking on the insurance program to provide $1.48 million in the current fiscal year, which began on July 1. Fire Department officials first proposed the program last spring, as the city was considering ways to fill a budget hole that was projected at $40 million. To address the lost revenues, the council eliminated about 70 full-time equivalent positions from the city’s workforce, including 32 in the Police and Fire departments. It also approved an attrition program that offers bonuses to department veterans to retire, thus obviating the need to lay off newly recruited employees. The program was pitched as a way to prevent further layoffs.

In their Dec. 15 review, Finance Committee members generally supported the program, even as they noted that it’s hard to predict how many people will participate. Vice Mayor Tom DuBois called the proposal “really creative” and encouraged staff to include in its marketing materials a comparison between the fees customers would be paying to participate and the costs they would incur under their existing insurance policies. Council member Liz Kniss also lauded it, though she noted that the city will probably need practical experience with the new program before finalizing some of the details.

Council member Greg Tanaka, who chairs the Finance Committee, was more skeptical and said he would not support the program unless staff provided a “distribution analysis” with information about individuals who currently use the ambulance service and who would likely enroll. The information is critical, he said, to avoid a situation in which only those who frequently use the ambulance service sign up for the program.

“Insurance really works well when it’s a random distribution,” Tanaka said. “It doesn’t work well when you have highly concentrated usage. We can end up having a ‘heavy-user’ program, (where) all the people who buy are heavy users.”

Fire Department staff aren’t particularly concerned about facing that scenario. Cameron noted that most of the people who are heavy users tend to be elderly residents who are covered by Medicare. As such, they are unlikely to enroll in the insurance program.

A more likely participant would be someone who is on commercial insurance such as Kaiser Permanente or Blue Shield of California, which cover some of the ambulance cost but still leave an individual with a bill totaling hundreds of dollars.

“The more random events, where someone breaks their leg or gets in a car accident — those folks are more likely to be the ones to have commercial insurance, who are currently working and receiving insurance through their employer,” Cameron said. “We do think we have a great deal of hope for the success of this program because we do think this is who it’s going to appeal to. They do happen to be the contingent of our population who doesn’t use the service very often.”